Tote Notes - Winter 2017 - Vol 29, Number 1

STATE OF THE NATION

Fiscal Year 2016 came up short across the organization. Missing plan in revenue and in profitability, as shown below:

PETRON: Sales 11% less than plan, profit 7% short of plan

PENETONE: Sales 14% less than plan, a loss vs. profit

WEST PENETONE: Sales 12% less than plan, profit 9% short

Much of the shortfall can be explained by the sluggish global economy which in turn led to weak demand in base commodities, namely oil and copper. Prices plummeted: oil fell 60% and copper 33%.

A predictable reaction to this fall in demand was a pullback of order activity by many of our customers as they adjusted to the weak end markets. Even the severe price declines could not stoke enough demand to offset the volume declines.

Since the bulk of the West Group’s customers are exposed to the commodities market - mining and petrochemical, specifically - offsetting gains in other product lines and non- commodity market customers were unable to fully pick-up the slack.

Despite a very challenging environment, the group made steady progress in key areas. These include:

Facilities

21,000-foot expansion at Petron was completed and essentially on budget.

This new capacity enables the group to bid and win substantially more new business in the coming years.

Oil Refining Shutdown/Turnaround

First time project wins for our new STAR team in the refining maintenance industry. These projects were with some of the World's largest and best respected petroleum producers.

Project testimonials by these satisfied customers have been nothing short glowing praise.

West Penetone's signature chemistry is now approved globally for use with one of the world’s largest integrated oil and gas producer.

Future bid wins are expected in fiscal year 2017. The hard-won ground work of global product approvals and successful jobs done-to-date have paved the way forward.

Toll Blending

West Penetone achieved sizable new business wins in dairy and industrial garment cleaning.

Petron expanded its toll business by over $3 million with business from a major oil company and with a major shovel OEM.

Our production facilities have met the highest standards for quality and laboratory testing that our world class customers demand.

Other

Penetone is now an exclusive supplier of efficiency enhancing materials to the world's largest locomotive manufacturer.

Looking ahead into 2017, there is reason to be optimistic. In November, a shock to the system took place in the form of the surprise presidential election. The market surge in stocks and commodity prices - known as the "Trump rally” - suggests business sentiment is now looking a lot better. The Trump victory is being perceived as a good thing for business and good for the broad economy. Expectations are for lower corporate taxes, a reduction in regulations, and less offshoring of workers.

The outlook for the U.S. economy is bright and a positive outlook is key to all of our operating companies' fortunes. When corporate America has a positive view when looking out into the future, capital expenditure budgets open up. It is already happening. We see it in the reopening of idled mills and mines, a pick-up in rig counts in the field, increases in overall production volumes, and greater use of existing machinery. This all means more demand for our products.

The industrial economy is turning a corner. Moving upward in a measured, sustainable way. And so will West Chemical, but only with focus, determination and relentless attention to our customers.

This is a gift. A great opportunity. Seize it. These inflection points do not come often. They are career defining.

Poised for the New Year

By John McHale

We have completed our 2016 fiscal year at Petron. We were disappointed to end up behind budget on both the sales line and the operating income line, a first since 2008, for a variety of reasons. But to keep everything in perspective—it was the third most profitable year at Petron in the 48 years we have been in business. And only missed being second most profitable by less than 2%.

As I reported in the Fall Tote Notes—we had a slowdown in orders from Latin America due to high inventory levels that needed to be worked down in 2016. Those have now been reduced and we are starting to see orders commencing per a normal schedule.

Although the stock market is at all-time highs, the general manufacturing and mining sectors are only muddling along. But there is reason for optimism as prices for copper and iron ore are beginning to rise and we expect this will result in more mines starting up again in 2017. All of this will be favorable for Petron.

Base oil prices in 2016 were quite stable but with OPEC implementing lower production quotas we are experiencing increases in our base oils which puts pressure on our margins and will necessitate Petron price increases. A review of 2016 has to include the completion of our new $4.1 million-dollar expansion that added 21,000 square feet of warehouse and manufacturing space in addition to new kettles and storage tanks.

Our safety record was stellar in 2016. We have now gone 570 days without a reportable lost time injury.

We developed new products in 2016 for spider crusher lubrication as well as a new antiseize lubricant. Both are well tailored to augment our mining lubricant portfolio of products.

We have some significant new business on the near horizon and we are bullish on a successful 2017.

We passed!

By Phillip Figdore

“Just what did we pass?” you ask. Our ISO 9001 audit to the new 2015 standard.

Over Dec 20/21, the lead auditor from our registrar DQS spent two days going through our updated quality and procedures manuals, reviewing documents, and interviewing employees on what we do here at 700 Gotham.

Due to our triennial 9001:2008 certification expiring in February 2017, we were under an accelerated timetable to convert to the new standard. So starting in September, we began the process of rewriting our manuals but also doing some intense analysis of our business.

The 2015 standard is intended to provide greater consistency and compatibility across all standards, reduce conflicts and duplication from different management system standards, allow for easy migration of other management systems (such as Occupational Health & Safety, Environment, etc.) into one, and minimize replication of documentation.

If only!

The biggest change between the 2008 and 2015 standard is the greater emphasis on risk analysis, that is, on understanding what might “upset the apple cart” in one’s particular organization. This is done at two levels: formally called “context of the organization” and the other “processes.”

“Context of the organization” can be thought of as the personal side of risk analysis by asking the question: Does a specific risk affect a specific group of people and if it does, how? All organizations are comprised of four IPs: employees, owners, customers and suppliers. And all organizations have two areas of concern: internal and external. Risk analysis here asks the organization to identify key internal and external risks and then to assess which IPs might be impacted. For instance, a key internal concern may be retirement of key personnel; a key external concern raw material availability. If the concern impacts the IP, then a detailed SWOT analysis is done.

“Processes” seem self-explanatory, but in the context of the 2015 standard, they are broad in scope. For instance, our calibration process generically describes how equipment gets calibrated but does not address the specifics of how an individual piece gets calibrated. Processes are described through the use of “turtle” diagrams which identify the process, inputs to the process, and the output of the process. For our calibration process the output would be accuracy of monitoring and measuring equipment in support of production processes.

Risk analysis is then required for each process and process risk. In our case, we identified 14 generic processes and 9 generic process risks. By way of example, two of our generic process risks were inventory levels and product rejection. If the risks impact the process (in our example of calibration and inventory levels and product rejection they don’t), a detailed risk analysis is done that assesses the probability of that risk occurring, its impact on the process, the exposure we have, what mitigation can be done to control the damage, contingency plans for addressing the risk, and finally the degree of control we have over that risk for that process.

Although risk analysis is not foreign to Penetone, in one form or another it has been done annually during our fall strategic planning meetings, the level of analysis and detail was somewhat daunting. However, through a series of round robin on site and off site work sessions, we developed the needed data.

Our hard work paid off. The auditor was impressed with the level of our risk analysis. And our audit results were fantastic: no major or minor nonconformities, findings that would have required formal written explanations. The auditor noted that our areas of strength included batch processing, management processes, and lab processes.

Although we won’t officially receive our new certificate until February, we are among the first in our chemical sector to obtain certification to the new standard. And as an extra added super-duper bonus, our Los Angeles sales office will be included on our certification. Welcome to the club Sylvia and Maria!

This was indeed a team effort in achieving this certification. My thanks to all.

Equipment setup a “tense” situation

By Greg Cebuliak

As part of the capital investments noted by Mr. Phares in the last issue of Tote Notes, Edmonton has a new addition to the family in the form of a bouncing, new tensiometer.

Unfortunately, setting up the instrument has come with some delay. Initial calibration saw an amplifier in the sensor permitting too much “bounce” in the probe leading to a slow decay in background noise and an unending signal during measurement. We have received the tensiometer back again from the supplier and, at the time of this writing, we are eager to set it up for operation. But you may now be asking, what is a tensiometer?

A tensiometer is a device that is used to measure and acquire surface and interfacial tension data. In a business that utilizes surfactants or “surface active agents” for blending finished goods, this data will be invaluable in further characterizing our products. But what is surface tension? Simply stated, surface tension is the elastic tendency of a fluid to minimize and acquire the smallest amount of surface area possible when in contact with another fluid or solid. This characteristic arises due to interactions between the molecules at the outward edge of the fluid and those in the inner volume. Depending on the type of molecules present, these interactions will vary requiring either a large or small amount of force to increase that surface area. Try to imagine two ball pits, one containing smooth plastic balls and the other containing tennis balls with Velcro patches. Open these two pits and then imagine which of them would spread out more quickly and easily. Surfactants would further come into play here by “blocking” the Velcro patches and allowing the tennis balls to spread out in a more similar fashion as the plastic balls.

So, where does the surface tension data help? Well, adding surfactants can only reduce surface tension so far before that value becomes constant. This value becomes constant when the outward edges of the fluid become saturated with surfactant forcing any further surfactant to form aggregates in the bulk or inner volume. We would like to know precisely when this happens as these aggregates perform rather specific functions in such products as the ROC product line by creating “solvent-like pockets” for gas contaminants to stay in. There are other uses for the device but let’s conclude here and hope that, with set-up number two, the probe will be a little less bouncy in 2017.

New Hires

Dean Kuehl became Petron’s newest addition to the sales team in November. Dean will be working closely with Gerry Enroth in the Mining division. We wish him all the best.

Service Milestones

3 Years

David Smith – Petron

Kahilidi Keza – W/P

5 Years

Colleen McLaughlin – Penetone

Yvon St Vry – W/P

Clark Evans Desmarattes – W/P

Alberta Medina – W/P

10 Years

Quinton Lawson – Petron

Greg Cebuliak – W/P

Emerita Cacheiro – W/P

25 Years

Yvon Lapointe – W/P

Charlie Good – Penetone

30 Years

Kimberly Lyons – Penetone

Congratulations to all on this achievement!

Employee of the Year Award

And the award goes to . . .

Louise Couillard – Marketing – although here a relatively short period of time, has made many improvements including upgrading the website, redesigning the labels and data sheets, and improving marketing documentation. Always supportive, willing to take on extra work and a pleasure to work with.

Dave Von Duhn – Salesman – surpassed his sales budget by 6% and grew sales in his territory over the prior year by 20%. He also landed the first Petrochemical Turnaround project in the US this past year. Dave is a great asset to the sales team.

Michele D’Alessandro – Administration – has just completed 10 years of service and has proved herself invaluable to the organization. Handling a variety of responsibilities –invoicing, payroll, tote tracking, receptionist, mail and switchboard and now the primary filler of the Wescodyne orders; she handles it all seamlessly and professionally. And with a winning attitude as well.